Core Natural Resources, Inc. (CNR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Core Natural Resources, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, August 6, 2026. I would now like to turn the conference over to Deck Slone, Senior Vice President. Please go ahead.

Good morning from Canonsburg, Pennsylvania, everyone, and thanks for joining us today. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements, by their nature, address matters that are, to different degrees, uncertain. These uncertainties, which are described in more detail in the annual and quarterly reports that we file with the SEC, may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which we have posted in the Investors section of our website at corenaturalresources.com. Also participating on this morning's call will be Jimmy Brock, our Chairman and CEO; Mitesh Thakkar, our President and CFO; and Bob Braithwaite, our Chief Commercial Officer. After some formal remarks from Jimmy and Mitesh, we will be happy to take questions. With that, I'll now turn the call over to Jimmy. Jimmy?

Thank you, Deck, and good morning, everyone. The results of the second quarter were a testament to the continued execution of our strategy, and we are pleased to report a significant step-up in our financial performance. We worked diligently with our insurance partners to settle the Leer South insurance claim for the full limits loss, complementing our strong operational results. Across the operating portfolio, we delivered a solid performance and are beginning to demonstrate what our full operating platform is capable of. With the insurance claim now behind us, we are singularly focused on the disciplined execution of our core business. We continue to prioritize safe, efficient operations, maintaining strong customer relationships, optimizing our cost structure and allocating capital in a way that supports long-term shareholder value creation. Now let me dive into our operational results. Coal sales within the HCV thermal segment came in at 8.4 million tons in Q2 '26 compared to 7.7 million tons in Q1 of '26. During the quarter, our HCV thermal segment reported realized coal revenue of $58.11 per ton compared to $58.86 per ton in the previous quarter. In Q2 '26, cash costs came in at $38.58 per ton compared to $42.56 per ton in Q1 '26. Segment cash costs benefited from significant tailwinds as mining conditions improved, sales were favorable and power costs begin to normalize. Adjusted EBITDA for the segment totaled $165 million, which compares to $126 million in the first quarter of '26. In the Metallurgical segment, coking coal sales came in at 2.3 million tons in Q2 '26 versus 2.1 million tons in Q1 '26. During the quarter, our metallurgical segment reported realized coking coal revenue of $121.43 per ton. The segment as a whole, including 300,000 tons of thermal byproduct sales achieved an average selling price of $114.13 per ton. Cash costs for the quarter came in at $85.65 per ton, nearly a $7 per ton reduction quarter-over-quarter, reflecting ongoing improvement and execution at our flagship longwall mines. Adjusted EBITDA for the segment was $200 million, which included insurance-related proceeds of $125 million. In the Powder River Basin segment, coal sales came in at 10.2 million tons in Q2 '26 compared to 11.9 million tons in the previous quarter. The lower volumes were a function of weak demand during the spring shoulder season exacerbated by low natural gas prices. Importantly, however, we view the reduced quarterly volumes principally as a timing issue. We have more than 50 million tons of PRB coal committed for delivery in 2026 and expect to either ship those tons this calendar year or conversely to capture or even enhance the full value of those commitments via other mechanisms such as blend and extend initiatives. In addition, we continued to build pit inventory during the quarter, which should serve to enhance operating margins in the year's back half. For the second quarter, our PRB segment reported realized coal revenue of $14.28 per ton and cash cost of $14.85 per ton. Moving to the Core Marine Terminal. The CMT shipped 5.2 million tons during the second quarter compared to 4.8 million tons in Q1 '26. CMT reported $18 million in adjusted EBITDA in Q2 '26, which was increased compared to the $16 million in the previous quarter. We had another strong quarter from a shareholder return perspective as well. As you know, our capital return framework targets the return to stockholders of around 75% of free cash flow with a significant majority of that total directed to share repurchases. During Q2 '26, we returned $68 million to shareholders, which was a substantial increase from $47 million in Q1 of '26. Since the program's inception in February of 2025, we have returned over 80% or $360 million of our free cash flow to shareholders via our capital return program. Of that total, $329 million has been used to repurchase approximately 8% of the company's shares outstanding as of the program's launch. As indicated, we believe the stage is set for a further step-up in capital returns in coming quarters. Before handing the call over to Mitesh, let me highlight one additional positive development. This one involving Core Innovations. Recently, the innovations team was selected for a grant from the U.S. Department of Energy to construct a pilot scale facility for the extraction of rare earth elements and critical minerals at the Pennsylvania Mining Complex. This announcement underscores Core's ongoing progress in developing innovative technologies that unlock greater value from the coal supply chain while advancing areas of national strategic importance. It follows an announcement made earlier this year in which Northrop Grumman named Core Touchstone Advanced Composite Group, a key supplier of tooling and components for the Talon Blue collaborative combat aircraft. Now let me turn the call over to Mitesh to provide the marketing and financial updates.

Thank you, Jimmy, and good morning, everyone. Let me start by providing an update on our financial performance first. This morning, we reported solid second quarter financial results. For 2Q '26, we reported net income of $126 million or $2.51 per diluted share and adjusted EBITDA of $324 million compared to net income of $21 million and adjusted EBITDA of $180 million in 1Q '26. These results were driven by strong operational performances from our HCV thermal and metallurgical segments as well as the recognition of incremental insurance proceeds related to the limits loss settlement of our Leer South insurance claim. During the quarter, Core generated $148 million in free cash flow, which included the receipt of $88 million of cash associated with the total Leer South settlement. The Leer South insurance claim was settled for $155 million in aggregate, of which $125 million was recognized in EBITDA in Q2 and approximately $30 million was recognized in previous quarters. All outstanding receivables at the end of the second quarter associated with the Leer South claim were collected by the end of July. In addition, 2Q working capital was inflated by an increase in inventory value as well as a 45X tax credit accrual that should provide a tailwind in future periods. At the end of second quarter, we had total liquidity of $1 billion, including $474 million in unrestricted cash and cash equivalents and short-term investments, which reflects an increase of $81 million in liquidity compared to the first quarter of 2026. Before transitioning to a discussion of our marketing efforts, I'd like to take a moment to extend my sincere thanks to our insurance partners and broker as well as the Leer South and corporate teams for their dedication and collaboration in successfully closing out our Leer South insurance claim. Our insurance partners worked efficiently and diligently throughout the process, and we greatly appreciate their responsiveness, thoroughness and commitment to finalizing this matter in a timely fashion. Their collective efforts were instrumental in achieving a successful resolution, and we are pleased to be turning the page on last year and directing our focus towards the future. Now let me update you on the coal market dynamics and the efforts of our marketing team. On the metallurgical front, macroeconomic factors stemming in part from the ongoing hostilities in the Middle East continue to weigh on global steel production and in turn, global coking coal demand. Despite these near-term headwinds, we view the long-range outlook for metallurgical markets as promising due in large part to continued industrialization, specifically in Southeast Asia and India. That region continues to add new blast furnace capacity at a rapid pace and is expected to remain on that trajectory for the foreseeable future. Think about it, almost everything necessary for industrialization requires steel from buildings to roads to bridges to power stations and to data centers. That's the principal reason why the World Steel Association is projecting a resumption in global steel growth in 2027 after several years of contraction. In the domestic thermal market, coal demand was impacted by low natural gas prices, elevated customer stockpiles and seasonal weakness associated with the spring shoulder season. At the end of June, domestic coal burn was down approximately 10% year-to-date versus 2025. However, with coal generating units returning from planned outages and recent hot weather driving power demand, conditions are setting up for a stronger back half of the year. While low natural gas prices continue to weigh on incremental spot demand, volumes are anticipated to increase meaningfully, supported by improving customer demand and increased rail set availability. This is expected to provide a particular benefit to our PRB segment as reducing in-pit inventory should result in lower cash cost per ton. Longer term, utilities continue to evaluate extensions to coal plant operating lives with several utilities also revising integrated resource plans to retain coal in the generation mix. The latest PJM capacity auction reinforces the increasingly favorable fundamentals for U.S. power generators. Elevated clearing prices reflect robust electricity demand from data center growth and industrial reshoring, which continues to outpace additions on dispatchable generation. As reserve margins tighten, the value of existing thermal generation assets increases. At the same time, federal funding through the Defense Production Act and other recent policy initiatives is providing support for planned upgrades. These dynamics highlight an increasingly supply-constrained power market where reliability has become a strategic priority. In the international thermal market, uncertainty surrounding conflict in Middle East and the disruption of LNG shipments to the Strait of Hormuz continue to drive market volatility. The resulting reduction in global LNG supply has created significant dislocation in international energy market and increased price volatility across competing fuels. Due in part to these dynamics, the International Energy Agency's latest forecast is projecting a 2% increase in coal-fired generation globally in 2026. In addition, potential disruptions to pet coke supplies from the Persian Gulf would persist for an extended period, which could benefit our HCV thermal sales into the Indian cement market. Longer term, global power demand is projected to grow substantially. The IEA expects global electricity demand to grow 3.6% a year through 2030, and this growth is expected to stress grid stability around the world. In addition, fundamentals in India remain strong, supported by cement demand growth as the country continues to invest in infrastructure, housing and construction. Despite the current volatility, our marketing team has made meaningful progress broadening and extending our sales book since the first quarter, securing approximately 16 million tons of contracted volume through 2030 at attractive prices. Now let me provide an update on our expectations for the remainder of 2026. On the guidance front, we are adjusting our cash cost and sales guidance levels as indicated in the earnings release. In the HCV thermal segment, we added 2 million tons to our sold position for 2026, bringing our total contracted volume to more than 31 million tons, reflecting continued strength in the demand for our high-quality product. The HCV Thermal segment is now nearly fully contracted with average coal revenue on the committed volumes of approximately $58 per ton. As for the SEC cash costs, we are increasing guidance by $1 to a range of $39 to $40.50 per ton due to stickier than previously expected inflationary pressures driving supplies, maintenance and service costs. In the Metallurgical segment, we added 400,000 tons to our sold position, bringing the segment to 8.7 million coking tons contracted for 2026 with approximately 6 million tons priced at an expected average coal revenue of approximately $121 per ton. As for the SEC cash cost, we are lowering our guidance by $2.50 at the midpoint to a range of $86 to $91 per ton. This decrease is a testament to our continued focus on driving best practices at our metallurgical operations as well as strong performances from our longwall operations. For the PRB segment, our contracted position now stands at approximately 50 million tons at an average committed price of $14.27 per ton. From an SEC cash cost perspective, we are increasing guidance by $0.25 to a range of $13.25 to $13.75 per ton, mainly due to persistently higher diesel prices than previously anticipated. Now let me pass it back to Jimmy for some closing remarks before we open the call for Q&A.

Thanks, Mitesh. As we transition into the second half of the year, we remain sharply focused on driving operational excellence across the entire mining platform. While we have made good progress on this front during the past 2 quarters, we expect to continue to build on our recent momentum. Looking ahead, we remain concentrated on 3 main priorities for the remainder of the year. First, establishing Core as a world's premier global coal producer while operating in tight alignment with our core values of safety and compliance, continuous improvement and financial performance. Second, driving strong and improving capital returns in the current soft market environment while laying the foundation for truly exceptional returns as coal markets rebound. And third, capitalizing on the compelling long-term market opportunities that lie ahead, including resurgent U.S. power demand, tightening global energy markets and an ongoing infrastructure build-out in the developing world. In short, we are preparing Core to succeed on all fronts. As always, I want to thank our employees for their hard work and efforts in helping us deliver a strong quarterly performance. With that, I will hand the call back over to the operator to begin the Q&A portion of our call. Operator, can you please provide the instructions to our callers?

[Operator Instructions] Your first question comes from George Eadie from UBS Financial.

Good result here. Mitesh, maybe just on the HCV segment, Bob too, like what price are you getting for 2027 tonnes placed today? And can you also remind me perhaps what percent of HCV is contracted next year? And I guess, as a consolidated basis, like is $60 a tonne about the right level to start thinking for next year there?

Yes. So George, just to make sure we're clear, the HCV segment has PAMC and also our West Elk product in there. So when you look at next year, we're more than 50% contracted sitting here today. We have been successful in locking in some volumes against API 2 indices when they rose most recently into Europe for our West Elk product. And then we also were able to lock in some tons with PAMC as well into India, most recently even for 2027. The India tons today are in that $60 range, as you mentioned. The West Elk tons, I'd say, are more in the upper 40s to low $50 type range. But again, when you look at what the balance is, PAMC, obviously, at 27 million tons, West Elk at, call it, 5 million to 6 million tons. Your average realization is in that upper 50s to low 60 range.

Okay. No, that's helpful. And then the thermal byproduct like there's a bit of variability there, $55 a tonne is 30% higher quarter-on-quarter. Can you maybe help us how to best forecast this? Is 55 the right level? Or is it more sort of mid-40s like prior periods?

So right now, again, it really depends on what the export market is. We're using a lot of that byproduct to blend in with our HCV mix. So as API2 prices are higher, you're going to realize a higher netback for the byproduct as well. So again, it's not a perfect number, but I think you'll -- for at least the balance of this year, I would expect it to be in that $50 to $55 range.

Okay. Great. Just last one, if okay. DTA, like what are the impacts to you guys there? And what's the latest you're hearing?

Yes. George, this is Mitesh here. So on the DTA front, I think we are 35% owner in DTA. So the impact to us is relatively small. But if you think about it, our marketing team has done a pretty good job. And if you look at our guidance ranges, we were able to move things around to manage the impact on us. There's still impact associated on the cost front with respect to the damages to the equipment and stuff. The good news is DTA does have insurance, which they are going to pursue. But generally speaking, we are managing the impact from DTA.

Next question comes from Nick Giles from B. Riley Securities.

Just wanted to really ask about kind of obviously, nice job on costs here in 2Q. And so I just wanted to ask first on the met side, kind of how to think about the cadence of costs for the back half of the year. 2Q was below the low end of the range. So should we expect cost to kind of stay towards that low end? And then similarly, on the volume side, kind of what would take us towards the low or the high end?

Nick, I think as you look at the cost structure, of course, we've worked really hard on costs, putting in different schedules and doing different things. But I think we're seeing the benefit of that. It's definitely sustainable on where we are, and we're certainly looking for ways to improve that. So when you look at the nearly $7 improvement that we had on cost, that's a lot of those things that put in play. We had some production improvements there. And then as we move forward, looking into other things that we can do, get by the longwall move, we got Leer over into the north now where we wanted them. So I expect to sustain where we are and maybe even improve on that going forward. Now there could be volatility quarter-to-quarter. But in general, I think we're in a pretty good place as where we are today on the [indiscernible].

Great. And then maybe just switching gears to capital returns. You obviously had some nice cash inflows, thanks to the insurance reimbursements, but there was a working capital build. So just how should we think about kind of the cadence of share repurchases throughout 3Q and 4Q?

Well, I think as you look at that, obviously, we got a lot of the insurance money in late in Q2. So going forward in Q3 and Q4, I think you can expect us to have a heavier share buyback percentages as we use that cash going forward. And we'll stick to our plan of generating 75% of our free cash flow back to shareholders. But you certainly can expect a higher number when you look in Q3 and Q4, just by the cash buildup we have on the balance sheet. So we're certainly going to return a portion of that back to the shareholders.

And just to add to that, on the insurance front, there's about $38 million that we are collecting in Q3 here. As of now, most of that is collected. So that should help. Plus there's also a little bit of an excess inventory at the mines, which roughly, let's call it, about $40 million. And then also, just to remind everyone, we also have 45X credit that is building as working capital. We'll get that next year. Year-to-date, we have about $25 million in 45X credit that is also inflating that working capital. So when you add all those pieces together, you're close to like $75 million to $100 million of swing that could happen on the working capital. The 45x credit will be next year, but vast majority of that we expect to flow this year.

Your next question comes from Nathan Martin from Benchmark Company.

Mitesh, just kind of sticking with the balance sheet for a second. You mentioned liquidity over $1 billion, cash close to $0.5 billion. What's kind of a comfortable target for those metrics because I'm assuming you guys are okay with that coming down a little bit, just as we think about what else might be available for shareholder returns.

Yes. So Nate, if you just think about what we have said in the past that we are -- we try to maintain a net debt-neutral balance sheet. But if you look at, for example, last quarter, we were a little bit under. I don't mind going a little bit on the leverage side. So just quarter-over-quarter, there was almost like a $70 million swing in our net cash position. So that's kind of a rough guide. Now if our share price provide us an opportunity to be more aggressive, we have a balance sheet and liquidity to support that as well.

Got it. Appreciate that. Maybe a question for Bob. Bob, when we look at the revised 31.5 million to 33 million ton guidance for the high CV thermal segment, what's the split there between PAMC and West Elk? And then can we get an updated breakdown of the $30.9 million committed price?

Yes. So when you look at the full year, you're looking at roughly 26-ish million tons of Bailey balance then would be West Elk to get to the higher end of the guidance. Obviously, we'll try to run Bailey harder to get to that 27 million ton level like we did in 2025, assuming the market is there. I feel pretty comfortable right now. We're starting to see some strong demand out of India as monsoon nears its end and inventories among the stock and sale trade certainly remain at low levels, and we're receiving inquiries on a daily basis. So it certainly puts us in a good position to try to maximize the total volume out of the PAMC complex. But sitting here today with what we have contracted of the 30.9 million tons, 15 million in the back half of that would be PAMC and 3.3 million of that would be West Elk. And we have about 2.4 million tons still linked to API2 for the back half of the year, Nate. We're modeling in $110 price of API2 to get to that $58 number that we provided in our guidance. But the sensitivity there is about $0.08 a ton. So when you look at July, July API2 price was $1.20, so we certainly have a tailwind working for us that direction. And if it continues to stay strong, that certainly will help.

Okay. Great, Bob. And then just while I have you, shifting over to the met side, consistently weak, right, high-vol markets there. How are they impacting realizations? What efforts have you been successful using to help lessen that impact? And then what do you think improves that market?